Add VIX Calls

Protecting Against Another Downside Push

By Bryan Bottarelli
Wednesday, July 09, 2008 2:30 PM EDT
Wed, 9 Jul 2008 18:30:00 GMT

PLAY: Buy the VIX July 25 Calls (VIX GE) at or under $1.15, good for the day. Place a protective stop limit at $0.55 and a sniper sell at $1.50.

Dear Bottarelli Research Member,

I find it quite interesting that both oil prices and the major market averages are falling in tandem this afternoon. As you know, falling oil prices will be good news for our DUG July 30 Calls (DZG GF), so maintain this position for more upside into the close.

Now, while all of this downside action is occurring, it makes sense that the CBOE Volatility Index (VIX) has reversed yesterday’s losses and is once again getting positioned to move higher. As you can see below, this bounce is occurring right at the 200-day moving average. This is not a coincidence.

VIX

But at the same time, I find it rather interesting that the VIX July 25 Calls (VIX GE) have not moved up at all in today’s trading. This presents us with a unique buying opportunity, and I don’t want to pass it up. So, for all of you traders who are able to play VIX calls, let’s add this position now!

PLAY: Buy the VIX July 25 Calls (VIX GE) at or under $1.15, good for the day. Place a protective stop limit at $0.55 and a sniper sell at $1.50.

If you are unable to play options on the VIX, you may consider adding a cheap July call on the UltraShort S&P 500 ProShares (SDS – AMEX).The SDS July 70 Calls (SDS GR) for $1.40 per contractlook like an attractivealternative, but I will not be tracking this play in our daily trading alerts. So, if you choose to enter these SDS calls, plan to exit them in tandem with our VIX exit signals. And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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